Ban not stopping mainlanders from buying more homes

Residents get around Beijing rule to cool market by using the back door - divorce and parents

PUBLISHED : Tuesday, 15 January, 2013, 12:00am
UPDATED : Tuesday, 15 January, 2013, 4:15am

Have a chat with someone on the mainland and eventually the topic will turn to property.

The passion for investing in "bricks and mortar" is unlikely to be diminished by the central government's restrictive home purchase policy, which bars residents from buying more than two homes since early 2011 in an attempt to curb the overheated property market.

But this is hardly a problem for the bold and ingenious. To them, the back door is always there if the direct route of buying a third or fourth home is not an option.

One mainland contact says an increasing number of "creative" couples are turning to divorce - sometimes using fraudulent documents - to avoid restrictions on the purchase of more than two flats.

They have more bullets in their arsenal.

Not content with "divorce for convenience", they also use their respective parents, most of whom may not own properties, to buy a third or even fourth home.

In 2011, nearly 2.87 million couples filed for divorce, an increase of 7.3 per cent from 2010, according to Ministry of Civil Affairs data.

Although the long-term impact on the divorce rate is uncertain, one thing is sure: home sales and prices are unlikely to see a big fall.

In addition, the acceleration of urbanisation will become the driving force for housing demand in the next decade.

With the rapid growth of housing demand, developers are to jostling for a bigger share of the expanding market.

Lee Wee Liat, the head of research at BNP Paribas, has produced a report entitled "China developers - An era of warring states", in which the real estate industry has been likened to the country's warlords who set out to conquer neighbouring states and consolidate their rule more than 2,000 years ago.

Lee believes a similar situation is playing out among the developers, as they fight for market share in a fragmented market where only the strongest will succeed.

The winner of tomorrow will be determined by land bank, funding and execution ability gauged by a combination of cost control, profit margins and the pace of asset turnover.

The market share of large developers by transaction volumes is still way below optimal, with the largest player China Vanke taking up just 2.8 per cent. Poly Real Estate controls 2.1 per cent and China Overseas Land & Investment has 1.9 per cent.

In the United States and Hong Kong, Lee said the optimal market share for some of the largest developers could be 5 per cent nationwide and 10 to 20 per cent in specific cities or regions.

Mainland China's nationwide transaction volume should grow more than one billion square metres per year when urbanisation edges higher from 51 per cent now.

Lee's forecast was based on studies of real estate markets in South Korea, Japan, the US and the Britain that indicate that the relationship between urbanisation and floor space sold follows an S-curve - also known as the Northam Urbanisation Theory.

Evidence from across the globe indicates that the marginal increase in housing demand accelerates when urbanisation is at 50 to 70 per cent, as migration into urban areas has secondary effects, such as existing urban households trading up to larger homes within their affordability.

When this theory is applied to mainland China, demand for housing varies across the provinces as urbanisation rates vary too. For instance, the urbanisation rates in tier-one cities such as Beijing, Shanghai, Shenzhen and Guangzhou has crossed 80 per cent. Therefore, a large part of housing demand is likely to be in the form of upgrades.

The urbanisation rate in second-tier cities such as Chongqing, Chengdu and Wuhan is 45 to 60 per cent as they are the largest beneficiaries of higher demand for housing because of increasing urbanisation.